Flight Centre's Graham Turner and Cofounders Are Flying High

Sipping coffee with Graham Turner at a Brisbane cafe, it’s easy to forget that he’s the founder and managing director of a public company with a market cap of nearly $3 billion. Or that his personal wealth reaches $575 million on FORBES ASIA’s list of Australia’s richest. Dressed in the company uniform, with silver globe logos on his black trousers and short-sleeved striped shirt, he’s relaxed, low key and lets slip the occasional swear word. As he dashes off to his next meeting, he calls over his shoulder: “Sorry, you’ll have to get the bill.”

Across the road, the headquarters of his global travel company, Flight Centre Travel Group, are equally unpretentious. Turner is at a stand-up desk and crammed into an office with seven other top executives–all wearing the uniform. “We ask our staff to wear it, so we should too,” says one, adding that the uniform no longer has a standard issue short-sleeved shirt–Turner has his specially altered to the more casual style.

Appearances can be deceptive, however. The 65-year-old Turner, a keen bike rider and marathon runner known universally as “Skroo,” regularly features on lists of Australia’s most successful chief executives. He built his first travel company, the London-based bus-tour business Topdeck, in his 20s, then returned to Australia to start Flight Centre.

The group now dominates Australia’s travel agency sector, with 1,400 storefronts in most major shopping malls and high streets, and a 40% market share, according to IBISWorld. It has expanded to ten countries overseas, including India, Singapore, China, the U.K. and the U.S., employing more than 17,000 staff. In the year ended June 30 it wrote more than $13 billion worth of travel business (or total transaction value), generating revenue of $2.03 billion and a net profit of $190 million.

Significantly, Flight Centre’s fortunes have surged in recent years while many of its competitors have been maimed or killed by the Internet. Its total transaction value is up by more than 60% over the past six years, and its net profit has grown 58% in the same period. It has also expanded its brick-and-mortar network by 500, to a total of 2,500 shop fronts worldwide, 16 of them “hyperstores” with up to 60 staff in high-rent locations such as London’s Oxford Street and New York’s Madison Avenue. The first Asian hyperstore opened in New Delhi late last year and will be followed by Mumbai this month.

Ask Turner about the Internet threat and he’s quick to point out that it’s been a competitor in the travel industry for 20 years. While Flight Centre’s “blended model” includes a website for customers to book flights online and ask questions, it generates only around $500 million in annual sales, and he says he doesn’t see that growing significantly. Instead, his strategy is to expand in higher-margin corporate travel, leisure travel, wholesaling and add-ons such as accommodations. “We are certainly under cost pressures, and we have to become more productive and more efficient, with more expertise in hotels, holiday packages, tours and cruises,” he says. “We want to become a world-class retailer, with a lot of our own travel products.”

Graham Turner–Credit: Richard Whitfield For Forbes

Geographic and brand diversity are a key part of the strategy. Australia, the U.K. and the U.S. account for 80% of total transaction value, but Asia is the fastest-growing sector (off a low base); it’s focused on corporate travel for foreign companies. And while Flight Centre is still the company’s dominant brand, it boasts 30 other brands, including Escape Travel, Corporate Traveller, Liberty Travel (in the U.S.) and Travel Money Oz (one of Australia’s biggest retail foreign-exchange dealers). It also owns a bicycle wholesaler and retailer, a travel academy and Topdeck, which Turner bought back in August.

Turner’s vision is to morph Flight Centre from a middleman broker of discount airfares to a global retailer and wholesaler of travel products. This reduces its dependence on airline commissions, although its sheer size in the Australian market still gives it bargaining strength to match Internet offers. Under this strategy customers will often book simple, low-margin flights on the Internet but come to Flight Centre’s stores for face-to-face advice on more complex trips requiring multiple flights, hotels, tours, rental cars, insurance and the like.

Turner has always been happy to break away from the herd. Bill James, who cofounded Flight Centre with Turner, puts it this way: “One of Skroo’s philosophies is that if something’s been done in a traditional way, look at what they’re doing, and by definition it’s probably wrong and there’s probably a better way.” (The nickname comes from the Turner screwdriver brand popular when he was young.)

An example? James says 20 companies offered bus and camping tours of Europe when Turner and a friend started Topdeck in 1973. Turner’s twist was to buy an old double-decker bus and convert the top level to bunks. No one had to pitch tents, and meals could be prepared in transit, giving him an edge over competitors.

James met Turner at a London party when the two 23-year-olds were traveling in Europe after finishing their Australian university degrees (Turner in veterinary science, James in economics). “I remember thinking that if this guy ever gets into business, I want to work with him,” recalls James. “He was so different from anyone I’d ever met. If he starts to talk on any topic–social, economic, business–his views are unique. He looks at things from a different aspect.”

Turner traces his independent thinking back to his childhood, growing up on an apple orchard in southern Queensland. The local school had one teacher for 45 pupils across six grades, and from the age of seven he helped out in the orchard. “Being fairly isolated on the farm with your family and having a one-teacher school meant you had to work on your own, and you learnt a fair bit about bushcraft and mechanical, practical things,” he says.

As a passenger on Turner’s first bus tour, James was so impressed with his can-do attitude (which included precariously jamming the bus onto the back passenger deck of a ferry when it wouldn’t fit into the cargo hold) that he used his savings to pay for Topdeck’s second bus.

A decade later Topdeck had some 80 buses touring Europe, North Africa and Asia. It was a business baptism of fire, keeping old buses safely on the road in places such as Iran and Pakistan. Turner, typically laconic, describes it as “a reasonably stressful operation,” remembering one 3 a.m. phone call when a bus broke down in Afghanistan between Kabul and Kandahar and he had to arrange to have a new engine flown in. “It was a fantastic grounding in business in terms of letting people do their own thing and trusting them to do it,” he says. “The [bus] crews had to be pretty independent and take responsibility for what they were doing.”

By the time Turner returned to Australia in 1983, his next business was well under way. Topdeck had begun selling cheap airfares to Australia, based on the London “bucket shops” where airlines offloaded seats that hadn’t sold through mainstream travel agents. It funded, along with Turner’s friend Geoff Harris, a handful of discount-flight shops in Australia. Turner ran the Brisbane office, James the Sydney one, and Harris had seven travel shops in Melbourne. By 1986 the founders had sold out of Topdeck, and the following year Turner, James and Harris joined their loosely affiliated travel agencies into one business and Flight Centre Aust Pty Ltd. was born.

Cofounder Geoff Harris. Credit: Nicole Cleary / Newspix

As with Topdeck, Turner had a fresh take on how things should be done. Unlike many retailers, Flight Centre has not funded growth through franchising–all stores are company-owned apart from 14 Escape Travel outlets. But store managers can buy into a percentage of their store’s profits (up to 20%), and head-office costs are shared by each store, making each one a small business. “If they want fancy marketing, they have to pay for it,” explains Harris.

This deeply ingrained profit culture also tends to lock in high achievers. Turner notes that six of his country managers began as Flight Centre travel consultants, and most have been with the group for more than 20 years. When Flight Centre listed on the Australian Stock Exchange in 1995, staff bought 25% of the shares on offer, paying 85 cents (a 10 cent discount). “One of the things that differentiates Flight Centre is the emotional and physical sense of ownership the staff has for the company,” says James.

Another differentiator is Turner’s “family, village, tribe” management structure, based on anthropological studies of how humans function best in small groups. Flight Centre’s workforce is based on teams (families) of five or six people, organized into villages of six to eight teams and tribes of around 25 villages. Each team has its own profit-and-loss account, and each tribe has its own flag, designed to engender a sense of belonging, even within a large, multinational company. “Senior management is trying to say, ‘You don’t work for Flight Centre, you are Flight Centre,’ ” explains James.

The three founders still control 43% of the shares, though Harris and James are no longer executives or directors of the company. This makes the company’s shares less liquid but gives Turner more freedom. “ We’re rock solid,” says Harris, adding that the three have a pact to retain at least 40% of the shares. “We’ve been through a hell of a lot together.” His 14.7% stake helps put him on the FORBES ASIA list of Australia’s richest again this year, at No. 50, with a fortune of $550 million; James just misses the cutoff; Turner, with a 15.1% stake, is at No. 49.

Harris nominates the first Gulf War, in 1990, as the company’s most precarious moment, when travelers seeking flight refunds were akin to a run on the bank. But there have been plenty of other challenges, including 9/11, the 2008 global financial crisis and the Internet. As each threat subsided, Flight Centre often outdid its competitors by retaining staff during the tough times, expanding and sticking to its “lowest-price guarantee” mantra.

More recently, however, the company has hit turbulence. Revenue rose slightly in the last fiscal year, but profits fell 25%. Analysts began highlighting concerns that shaky consumer confidence would curtail the huge growth in Australians holidaying overseas. After a surprise profit downgrade on Dec. 18 due to a flat domestic leisure market, the share price bottomed at less than A$32–down from almost $56 in March–and is now above $36.

Turner, after decades weathering the vagaries of the travel industry, seems unconcerned. In an interview two weeks before the profit downgrade, he said: “The share price will go up and down, and you cannot lose sleep over that. If you can deliver on the bottom line and the top line, that’s great, and the share price will come with it.”

Analysts seem to agree. Credit Suisse upgraded its rating to outperform from neutral after the downgrade, and analyst Grant Saligari said Flight Centre offers value even if the weakness in the domestic-leisure sector continues this year. J.P. Morgan maintained its rating at overweight, stating that the company’s problems were cyclical rather than structural and the 20% drop in the share price since late November was overdone.

Perhaps the biggest question mark for Flight Centre is its dependence on Graham Turner. When he stepped aside as CEO in July 2005 to become executive chairman, its upward trajectory faltered and a series of profit downgrades earned it the label “Flightless Centre.” He returned eight months later. Ten years on he says he expects to be there for another 20 years, and there’s no doubt his vision and ability to engender loyalty are vital to the company’s success.

Says Harris: “I’ve never heard him praise anyone ever, but people would run through a brick wall for him. Skroo would be in the top 100 business people in the world. This is a very unconventional business model with an unconventional leader, but it’s produced amazingly consistent results for over 30 years and outcomes are what you judge people on.”